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In Moscow's Hungry Duck, everyone dances on the bar. Soon, you feel, there will be a cleansing, apocalyptic fire

I am in Moscow to attend the Russian Booker prize, which shares more than a passing resemblance to its British cousin - the shortlist is annually trashed, the judges traduced and the future of the Russian novel itself called into question. Established in 1992, the inspiration of Sir Michael Caine, the former chairman of Booker plc, it galvanised the Russian novel at the very moment that the country was slipping wilfully into anarchy. Sir Michael is in Moscow again this year (where he is routinely mistaken for the Cockney actor of the same name), passing the baton of sponsorial responsibility to the Smirnoff Corporation. The dinner is held at the Maly Manezh art gallery; but we arrive late after our taxi, which the organisers insist we take, becomes caught up in the city's labyrinthine one-way system. The roads are becoming clogged with fresh snow, so we abandon the taxi to walk. As I leave the car, it dawns on me exactly where we are: no more than 800 yards from the Metropole Hotel, from where we set off 30 minutes ago. And the gallery? Yep, five minutes' walk away. Welcome to Russia.

The new Russia is passing through its Weimar phase, an intoxicating place where taxes and wages go unpaid, where there is hyperinflation and incipient anti-Semitism, where voracious prostitutes patrol the corridors of the big hotels and designer boutiques flourish, where everyone's second job is cabbying, and mob rule triumphs. Yet little of this is reflected in the modern novel; there is no Gogol or Dostoevsky to document Russia's contemporary extremity. "Our fiction is in great disgrace at the moment," complained the publisher Natasha Perova. "No one is doing anything new." The Booker winner, Someone Else's Letters by Alexander Morozov, was actually written in the late 1960s and shares the preoccupations of that time; the 1997 winner was set even further back, in the days of Stalinist repression. So how soon, then, is now?

The day before the Booker dinner, I lunch at the British Embassy. The ambassador, Sir Andrew Wood, is a congenial host, but you can see the fatigue in his eyes. The night before, on television, I'd seen the severed heads of the four Granger Telecom engineers, lined up like coconuts on the side of a road in western Chechnya. In captivity, the men had grown thin, Tolstoyan beards; they were unrecognisable from their pale, optimistic passport photos. "The Chechens are scum, wild beasts," says a guest at the lunch.

Out on the street, resentment of Caucasians seethes - "blacks" as I often heard them called. The resentment arises partly because many of Moscow's most ruthless Mafia gangs comprise ethnic Armenians, Georgians, Azerbaijanis and Chechens, but also because the Caucasus has long held an exotic fascination for metropolitan Russians. Tolstoy's late novella, Haji Murat, was about a fearless Chechen warrior, who leads resistance to Russian occupation of the Caucasus in the 1850s and who is likened, romantically, by Tolstoy to a thistle that will not die.

Mikhail Lermontov was attracted, too, to the wild mountain landscape of the region; it is where Pechorin, the "superfluous man" of A Hero of our Time, alienated from the sterility of the modern world, finds a kind of release for his restless energies. Would that the engineers had been so lucky.

From an upstairs window of my hotel I look out, at midnight, over the frozen whiteness of Theatre Square, where a frail dog is wandering aimlessly. Since the economic crash in August, the number of dogs abandoned in the city has increased exponentially, and the Metro is where many of them end up, snoozing in overheated carriages, or scavenging for food outside stations, where they are joined by limbless beggars dressed in soiled combat fatigues, unhappy veterans from the Afghan and Chechen wars. But the dog scavenging for food on Theatre Square is in bad shape.

"He is abandoned and soon he will die," says my friend, the critic Olga Doctorow.

"But that's just typical Russian pessimism," I say.

"No, realism."

In search of what Gorky once called the lower depths, we set off on a nightclub tour. Our guide is a young novelist, Katya Sadur, and soon we find ourselves in the Hungry Duck. You pass down a damp, unlit corridor, stinking of piss, to reach the entrance, where you are greeted by doormen dressed as militia and carrying machine guns. Inside, the electronic dance music is hectic, relentless and the stench of sweat is nauseating. Everyone dances on the bar and tables. One day, you feel, there will be an apocalyptic, cleansing fire here.

Later, back at my room, I'm approached by a striking young woman. She is wearing an evening dress, has six-inch stiletto heels and the huge red pillows of her lips are, clearly, collagen-enhanced. She is a hooker all right, but classier than the hunched girls outside the Hungry Duck.

"Would you like to invite me to your room?" she says, in heavily accented English.

"I'm, er, meeting someone for a drink. Sorry."

"Well, afterwards then?"

Alone in my room, wondering about her, my eye falls on a passage from Russia in Collapse by Alexander Solzhenitsyn, whom I saw speak the previous evening at the opening of his new play, Sharashka: "Where has this cruel tribe of beasts come from, these filthy grabbers claiming for their own the title of New Russians?"

Perhaps the great man had also visited the Hungry Duck.

Jason Cowley is editor of the New Statesman. He has been the editor of Granta, a senior editor at the Observer and a staff writer at the Times.